Google wins French court decision, won’t have to pay $1.3 billion in back taxes

It's a big win, but the French government has vowed to appeal the decision.

The pan-European effort to extract more tax revenue from large internet companies was dealt a setback yesterday. A Paris administrative court ruled that Google France wasn’t sufficiently autonomous from Google Ireland to justify imposition of a $1.3 billion remedial tax bill on the company.

Like many US tech companies, Google’s European headquarters is in Ireland, which has more favorable corporate tax rates than other countries in Europe. However, the company has offices and operations throughout Europe.

Ireland’s corporate tax rates are half or less than half of those in other Western European countries (12.5 percent vs. 20 or 25 percent, on average). France taxes corporate profits at levels above 30 percent.

According to a Bloomberg report, the tax issue turned on the issue of the degree of discretion and autonomy of Google’s French operation:

Paris judges ruled that the conditions to tax Google Ireland as if it had a permanent establishment in France weren’t met as Google France didn’t have the sufficient autonomy from the Irish headquarters. The court said this was evidenced by the fact that Google France’s employees couldn’t accept online advertising requests from local clients, with all orders needing approval from the headquarters in Ireland.

The court decided that Google hadn’t illegally transferred revenues and profits out of the country to Ireland. Google hailed the decision, but the French government has vowed to appeal.

Beyond Google, other US-based companies — such as Facebook, Apple, Amazon, Starbucks and others — have faced political and legal pressure to pay more taxes in countries throughout Europe.

More than 700 US companies have set up European headquarters in Ireland, attracted by the country’s low tax rates and English-speaking workforce.

About The Author

Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog, Screenwerk, about connecting the dots between digital media and real-world consumer behavior. He is also VP of Strategy and Insights for the Local Search Association. Follow him on Twitter or find him at Google+.